Saturday, January 30, 2010

Sugar Tariffs Cost Americans $2.5 Billion in 2009

The chart above displays refined sugar prices (cents per pound) using monthly data from the USDA (Tables 2 and 5) for: a) U.S. wholesale refined beet sugar price at Midwest markets and b) the world refined sugar price. Due to trade restrictions on imported sugar coming into the U.S. at the world price, the U.S. sugar beet producers have a sweet deal, assisted by their government enablers, who protect them from more efficient foreign sugar growers who can produce cane sugar in Central America, Africa and the Caribbean at half the cost of beet sugar in Minnesota and Michigan.

Of course, there's no free lunch, and this sweet trade protection comes at the expense of American consumers and U.S. sugar-using businesses, who have been forced to pay twice the world price of sugar on average since 1982 (27.2 cents for domestic sugar from beets vs. 13.8 cents for sugar from cane, see chart). How much does this trade protection cost Americans?

We can estimate the cost of sugar protection, using some additional data from the USDA (Table 1) about sugar:

1. Americans consume about 9.412 million metric tons (20.75 billion pounds) of sugar per year, and therefore every 1 cent increase in sugar prices costs Americans an additional $207 million per year in higher prices.

2. The U.S. produces about 6.9 million metric tons (15.4 billion pounds) of sugar annually, mostly from sugar beets.

3. Due to quotas, Americans are only allowed to import about 2.2 metric tons (4.85 billion pounds) of cane sugar every year, or about 23% of the total sugar consumed.

4. If sugar quotas were eliminated, and American consumers and business had been able to purchase 100% their sugar in 2009 at the world price in 2009 (average of 22.1 cents per pound) instead of the average U.S. price of 38.1 cents, they would have saved almost $2.5 billion. In other words, forcing Americans to pay 38.1 cents for inefficiently produced beet sugar instead of 22.1 cents for efficiently produced cane sugar, costs Americans an additional 16 cents per pound for the 15.4 billion pounds of American sugar produced annually, which translates to almost $2.5 billion. (Note: This is an estimate based on the assumptions that: a) the amount of sugar consumed in the U.S. and b) world prices, wouldn't change.)

Bottom Line: The cost of most trade protection is largely invisible and hard to calculate, but the cost of sugar protection is directly visible and measurable, since the USDA and the futures markets regularly report prices for both high-cost domestic sugar and low-cost world sugar. Like all protection, sugar tariffs exist to protect an inefficient domestic industry (sugar beet farmers) from more efficient foreign producers (cane sugar farmers), and come at the expense of the U.S. consumers and the American companies using sugar as an input, and make our country worse off, on net.

Isn't this part of the reason that a lot of candy companies have moved production out of the US? And Americans have lost jobs? And that we have crappy Coke made with corn sweetener instead of cane sugar in the US? Every time I travel abroad, I get a good Coke - one made with cane sugar that has that burn and tastes as it should.

All this so a few sugar beet farmers can make expensive sugar. That the rest of us subsidize. Thank you, US sugar policy.

Except for small differences like trust fund babies American consumers and American workers are for all practical purposes the same group of people. Very few in this society buy stuff with money that does not come from gainful employment. Economic policy should consider its impact on the nation as a whole consumers, workers, producers and any other entity impacted. This analysis considers only consumers and producers and is therefore deficient.

A more important deficiency is an implicit assumption that is inconsistent with economic reality. The author assumes that if the tariff is eliminated the savings will be passed on to the consumer. As noted in one comment candy companies have moved out of the country giving them both cheaper sugar and cheaper labor without losing access to the American market. Notice any decline in the price of candy lately? I have not and economic theory would suggest there should be none. Candy producers are price takers not price setters. The market sets the price. If the market would have supported a higher price before the moved they should have taken that higher price.

Consider three dates 1947, 1973, and today. 1947 because it is the oldest date where the economy was not impacted by the war or the Depression. 1973 was selected because it is the year in which Average Weekly Earnings of Americans (real wages) last set an all time record after which they have declined. Now consider the basket of goods and services used to calculate the consumer price index for each year. From 1947 until 1973 the number of man-hours needed to purchase the average product in the basket declined about 37 percent. In other words from 1947 until 1973 real wages rose faster than prices. From 1973 until today it is a different story. From 1973 to today the man-hours needed to buy the average product in the basket INCREASED about 10 percent. Real (inflation adjusted) wages have declined faster than prices leaving the vast majority of American worse off. The outsourcing/tariff reduction may have cut production costs but those reductions have not been passed on to consumers/workers but rather to higher executive pay and profit.

America's farm sector is the most protected, subsidized and regulated sector of the economy. US taxpayers fork over $60 billion a year in socialist crop subsidies to farmers. There are 7,000 farm extension officers to help farmers with their craft (paid by taxpayers) and extensive regulations regarding type and volume of output--some farmers are, in fact, paid not to farm.Moreover, rural infrastructure is paid for by urban residents, through cross-subsidization,. Highways, power systems, water systems, airports, train stops, postal service phone service--all subsidized by the federal government. Yet, US farmers are routinely lionized as the world's best, and portrayed as rugged individualists and true Americans. The rural Red States are, of course, huge net beneficiaries of federal spending, as documented by the Tax Foundation. This gravy train is deeply entrenched, and I doubt either political party has the will to stop it.

Except for small differences like trust fund babies American consumers and American workers are for all practical purposes the same group of people. Very few in this society buy stuff with money that does not come from gainful employment. Economic policy should consider its impact on the nation as a whole consumers, workers, producers and any other entity impacted.

That's right, they could be employed by an American firm whose primary market is overseas. In which case, their consumers may be producing sugar in Central America, Africa and the Caribbean. In which case, one still supports the other.

As noted in one comment candy companies have moved out of the country.

Which companies, specifically? And even if they have, foreign automobile manufacturers and other foreign firms have moved into the country.

Consider three dates 1947, 1973, and today.

As Dr. Perry has demonstrated on numerous occasions, these arguments are false or misleading. Come back when you have supporting evidence.

Consider that ag is what wrecked the last experiment in free trade 1850-1900. The french farmer demanded and got protection, Joesph Chamberlin wanted to protect British Empire farmers from the US and Argentina, etc. It is quite possible that Doha will founder on the same rocks that did in the first experiment. Ag has extreme hold on politicians in many countries, partly because many governments regard food security as an important piece of national security. Food tariffs will be still here long after we are all gone due to political logrolling.

There may be a "free lunch." Efficiency can create 11 lunches at the cost of 10. Some people believe when a business makes a profit on that 11th lunch, it's evil. Yet, when government creates 9 lunches (or less) at the cost of 10, that's good.

The increases in the quantity and quality of output per person is important (including health care). Yet, many ignore the real economy, and focus on other data instead, which often contradict the real economy.

Also, I may add, regarding health care. Government intervention in Europe created shortages (including long waiting lists, lack of specialists and treatments, poor hospital conditions, etc.), while in America, it created higher prices. Yet, many people blame the health care industry and insurance firms for expensive health care rather than the 130,000 pages of government regulations.

PeakTrader said...There may be a "free lunch." Efficiency can create 11 lunches at the cost of 10. Some people believe when a business makes a profit on that 11th lunch, it's evil. Yet, when government creates 9 lunches (or less) at the cost of 10, that's good.

This points out the biggest problem with the "stimulus" package discussion. It all centers around whether or not it is creating jobs, which completely misses the point.

For $787 billion (now projected over $800 billion), the expected number of new jobs created should be maybe 5 to 10 times higher than the targeted 2.5 million jobs saved or created. How many is arguable, but thinking it should be anywhere as low as 2.5 million is laughable.

If "saving" a government job consists of borrowing the money and keeping that employee, then past Presidents have been saving and creating millions of jobs for decades.

Apparently if Bush had called the Iraq War, the "Job Creation Act of 2003", the media would be fine with it.

The sugar industries from Barbados, Belize, Dominican Republic, Ecuador, Fiji,Guyana, Haiti, Jamaica, Malawi, Mauritius, Mozambique, Panama, Philippines,St. Kitts and Nevis, Swaziland, Trinidad and Tobago, and Zimbabwe are amongthe developing countries that support U.S. sugar policy. If these countries were more efficient producers of sugar they would not want access to our markets restricted. Instead they would rather sell a smaller amount of sugar at a price that they can make a profit.

Although U.S. real wages peaked in 1973, and been flat since then, there are relatively far fewer (grossly overpaid) union workers. So, it seems, real wages in the non-union private sector increased substantially. I'm sure, there are still too many grossly overpaid government workers.

It should be noted, the European and Japanese economies were destroyed after WWII. So, the U.S. could afford poor economic policies. Also, there was little to buy in 1973 compared to today. What good is a high wage when there's nothing to buy?

1. Employment in sugar containing products (SCPs) industries decreased by morethan 10,000 jobs between 1997 and 2002 according to the Bureau of LaborStatistics.2. For each one sugar growing and harvesting job saved through high U.S. sugarprices, nearly three confectionery manufacturing jobs are lost.3. For the confectionery industry in particular, evidence suggests that sugar costsare a major factor in relocation decisions because high U.S. sugar pricesrepresent a larger share of total production costs than labor. In 2004, the priceof U.S refined sugar was 23.5 cents per pound compared to the world price at10.9 cents.4. Many U.S. SCP manufacturers have closed or relocated to Canada where sugarprices are less than half of U.S. prices and to Mexico where sugar prices areabout two-thirds of U.S. prices.5. Imports of SCPs have grown rapidly from $6.7 billion in 1990, to $10.2 billion in1997, up to $18.7 billion in 2004.

Approximately 987,810 people worked in sugar-using industries as of 2002. In contrast,there are 61,000 full-time equivalent jobs involved in the growing and harvesting ofsugarcane and sugar beets. Studies suggest that the U.S. sugar program helps to maintainapproximately 2,260 of these sugar industry jobs, many of which are growing andharvesting jobs, at an annual cost per job saved of $826,000.

So, remind me again. Why is the tariff on imported sugar a good thing?

> And that we have crappy Coke made with corn sweetener instead of cane sugar in the US?

I just bought some "retro" Mountain Dew, and, frankly, I could barely tell the difference. I don't think I could tell the which was which in a blind test...

Not saying that's true of everyone, but I suspect it's a lot more true than acked. In a blind taste test -- esp. a double-blind one where people didn't know WHAT they were being tested on, most people wouldn't show any statistically significant preference for fructose/sucrose sodas.

And I say that as someone who, in a blind test, *could* and *did* identify the difference between Coke, Pepsi, RC, and two local supermarket brands of cola.

I nailed all five of them in a blind test.

I was guessing on the supermarket sodas because I knew which was the crappier supermarket -- hence the crappier, lower-quality internal brand -- and I thought one tasted crappier than the other. But I was correct...

> From 1973 until today it is a different story. From 1973 to today the man-hours needed to buy the average product in the basket INCREASED about 10 percent.

Oh horse shit, you asinine jackass.

The carefully selected basket of good in question is irrelevant, because it's a tiny fraction of the actual expenditures of any individual or family.

I've LIVED through that time. I know DAMNED WELL I'm not working a FRACTION as hard I would have worked in that same time before -- even if I'm getting minimum wage -- so I don't mean because the pay has increased or I'm paid more for doing a more complex job.

Your argument is blatantly specious because of the obvious fact that REAL DISPOSABLE INCOME, **in fixed dollars**, is vastly higher than it was forty years ago.

People SPEND more on things they did not before because in TRUTH they HAVE MORE TO SPEND. If their house costs them $200k instead of $150k, it's not because the house COSTS MORE FOR THE SAME THING -- it's because they're BUYING MORE HOUSE. More square footage, central heat and air, more bathrooms, more bedrooms, bigger kitchens, bigger garages, pools (screened in!), more energy-efficiency -- you name it, it's being included where BEFORE one "did without".

People blow far more money on a whole range of goods that were considered "luxury items" decades before.

People are paying LESS for necessities of life, and voluntarily spend MORE money for vastly better products -- mid-range cars used to be good for maybe 50, 60k miles before junking. Nowadays, most cars, while "costing more", are good for 150k-200k miles, easily.

Back in the 50s and early 60s, for any long distance auto trip, you included 2-3 SPARE TIRES because it's a certainty they wouldn't be able to handle a 1500-2000 mile drive round trip. Nowadays, most people on such a trip don't even have a real spare (part of that is more readily available tires in any given size at any location, but most of it is the fact that the likelihood of ANY blowout or flat is a tiny fraction of what it once was.

Mark's already compared the price of appliances, housing, 10 gallons of gas, and a sack of groceries in fixed terms, and shown that we live in the best of times, all the while not even commenting on the fact that "oranges in Iowa" doesn't mean CRAP like it did back when, because you can get OJ in Iowa in November at the supermarket. Lettuce out of season in the USA? Get it from Chile. Bananas? Central America. And so on -- stuff that used to be precious and unavailable to anyone but the filthy rich on a seasonal basis are on the table of every single person in the USA, if they want it, YEAR ROUND.

In summary:Y O U . are . an >>>IDIOT<<<.

And I apologize to idiots everywhere for associating them with YOU, you dimwitted slug.>:-/

With the sugar tariff each additional dollar paid by the consumer goes to an American producer or an American worker. Any resulting Keynesian multiplier acts to improve the American economy. Without the tariff, consumers pay less but workers get less and producers get less. Money leaves the country. The Keynesian multiplier is negative for our country. Every Republican presidential candidate from Lincoln to Hoover was a protectionist. One of the more outspoken was William McKinley. He said in 1892:

“Free trade means cheap labor, and cheap labor means diminished comforts — diminished capacity to buy, poor and enfeebled industries and a dependent condition generally. And every step taken in the direction of free trade, beginning with free raw material, is an advance, and a very long one and a very straight one, in the direction of reduced wages and a changed condition of the American workingman, not confined to the labor engaged in preparing raw materials for use, but will widen, and in the end enter every department of labor and skill.”

“I would secure the American market to the American producer, and I would not hesitate to raise the duties whenever necessary to secure this patriotic end. I would not have an idle man or an idle mill or an idle spindle in this country if, by holding exclusively the American market, we could keep them employed and running. Every yard of cloth imported here makes a demand for one yard less of American fabrication.